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Money In Your 20s: Five Reasons Why Your 20s Are The Most Important Decade Of Your Life

17 September 2008 7 Comments

The decade of your life known as your 20s are a crucial time of your life. Financially, it is the most important decade of your life. Here are five reasons why this is true:

Money In Your 20s Reason #1: Transition Points

Typically, you have more transition points during your 20s than any other time of your life. If you went to college, you are transitioning from school to the “real world”. Many individuals are transitioning from being dependent on family to becoming independent. Marriage is a normal thing in your 20s, so you are transitioning from single life to married or family life.

Each of these transitions require financial planning and awareness.

Money In Your 20s Reason #2: It’s Extremely Hard To Save

Let’s face it, most people make the least amount of money they ever will in their career during their 20s. You are just starting out and companies take advantage of new labor by not paying you that much. You have no choice but to accept it because you are trading money for experience.

Unfortunately, this makes it extremely tough to save money. Many 20-somethings entering the “real world” have debt that needs to be paid off. Much of your extra money goes towards the debt which leaves less money for savings.

Do everything you can to find a lifestyle that leaves you with money to pay off debt and some money left over to go towards savings, even just a small amount. As you’ll see in the next reason, even a small amount is crucial.

Money In Your 20s Reason #3: It Is The Most Important Time To Save

Despite being the hardest time to save, it’s also the most important time to save. This combination sucks, but it is reality. The money you save now goes such a long way later in your life, every dollar you put away during your 20s is huge.

Compounding interest doesn’t lie. It works and it is your best friend. Take advantage of it as much as possible.

Money In Your 20s Reason #4: What You Implement In Your Financial Life During Your 20s Is Likely To Impact Your Entire Future

It is very important to start your financial life off on the right foot. This means getting used to creating and keeping a budget, monitoring where your money is going, implementing a savings program with defined goals and objectives. What you implement during your 20s will stay with you the rest of your life. It’s hard to teach an old dog new tricks, so tackle these basic financial issues, that many people struggle to master, early in your life. You’ll thank me later.

Money In Your 20s Reason #5: Learn Some Investment Strategy While Your “Betting” With Minimal Amounts of Money

As you learn to invest, you are going to lose money. Investing is hard and many people are no good at it. The important thing is to learn from your losses and hopefully down the road, your gains will begin to outweigh your losses.

During your 20s, you aren’t going to have much money meaning you’ll have smaller positions. Utilize this time of your life to learn about risk and take some shots on some potential investments. If you lose, you will lose a small chunk of money when compared to the overall wealth of your lifetime. Don’t wait until you have more money to start investing, because then you delay your process of learning how to invest until that time. Start the learning process now.

7 Comments »

  • torbjorn rive said:

    It’s true about starting the leaning curve now. In reading a trading blog recently this options trader (very bearish) said ‘…if you’re in your 20’s be glad you’re losing [some] money in your 20’s. There are 50 and 60 year olds losing their shirts (and houses) off their backs as we speak.”

    At the moment I’d keep conservative, but with a keen eye on both bearish and future opportunities.

  • kevin duffey said:

    torbjorn:

    You make a great point. Where are you putting money these days?

  • kevin duffey said:

    Did you change your opinion of SKF?

    What might take SKF higher, is Morgan Stanley the next to go?

  • torbjorn rive said:

    Honestly I’m not putting much into stocks right now as my confidence is feeling pretty shaky. Bought a small gold position today, but I’m worried that a large group of people are about to short gold after a small run-up. Other than that I’ve failed on a Nat Gas trade recently.

    I just bought a large GIC for a year and a half term (what’s their American name again?) – and am holding more than 50% cash in my trade acct. I think we’re hitting some pretty gnarly support and should see a bounce (dead cat) – the next thing I’m using to short is TWM (Russel2000). If it gets down below 70 it’s probably a buy – but I’ll need to keep watching that area.

    In the meantime I just hope that my mutual funds in my bank’s hands are conservative enough – they conserve; I take my calculated risk.

  • alfred kelley said:

    Im 19, and i am saving aggressively now. I turn 20 next month. And i hope to be independent by age 21. And im'a try to find a 2nd job tommorrow. I was investing from age 16 to age 19- and lost thousands. So now- im'a focus on saving. never too late to save.